Letter: European fiscal policy is root of our problems

Your editorial (7 April) prompts me to write. It is the value of the euro, not the value of sterling, which is of concern; indeed the sterling to dollar or yen rate has shown some decline in recent months. From the chancellor’s perspective – the need to keep inflation low while raising taxes – the […]

Your editorial (7 April) prompts me to write. It is the value of the euro, not the value of sterling, which is of concern; indeed the sterling to dollar or yen rate has shown some decline in recent months.

From the chancellor’s perspective – the need to keep inflation low while raising taxes – the relative weakness of the euro has been a benefit.

The chancellor’s other measure of success is in cutting unemployment, and it is here that overall we continue to do quite well. There is, therefore, no need for measures to stimulate employment which, if employment is already tight, fuels wage demands – and we know where that leads.

There are two challenges with respect to national fiscal policy and manufacturing: one is the exchange rate and the other is interest rates. Rather too much is made of a link between the two. If the exchange rate is too high the country can reduce the value of its currency by reducing interest rates or by selling its currency – that is purchasing foreign currencies or precious metals.

Our financial problems are really one of European fiscal policy, and this is likely to end in tears. If one exchange rate for the UK cannot be suitable for both the north and south of the country, what hope in Europe?

Nationally, our immediate threats are increasing red tape and new taxes. Outside Europe we continue to reward ourselves better than most emerging economies, so the decline in manufacturing is not likely to be arrested. Perhaps it is here that the government has realised that the future is bleak, whatever they may do.